CFPB Is Evaluating The Impact Of Their Qualified Mortgage (QM) Rules

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

CFPB Is Evaluating The Impact Of Their Qualified Mortgage (QM) Rules.  In a blog I wrote on December 26, 2013 titled Overview Of The CFPB QM Rules Going Into Efect On January 10, 2014 I stated:

The Qualified Mortgage (QM) Rules were crafted by the Consumer Financial Protection Bureau (CFPB) with the intent to protect both Consumers and Lenders, but the proof of this will come once the QM Rules are in place, and their impact felt.

Well the CFPB QM Rules have only been in place since January and issues are already popping up, especially with the "Ability To Pay" component of the QM Rules.  The "Ability to Pay" section of the QM Rules limits Lenders to 3% for points and fees, including fees to affiliates, such as Title Insurance Companies.  The 3% restriction has very little impact on higher end loans, but on lower end loans, such as those purchase by most First Time Buyers it has already become a big problem.

Many fees associated with a loan are fixed, and do not adjust with the size of the mortgage.  The end result is mortgages on lower price mortgages reach the 3% very quickly and the loan no longer meets the QM Rules "Ability To Pay" requirements.  This leaves the Lender with two choices:

  • Approve the loan and not be protected by QM, or
  • Deny the loan because the Lender cannot risk having to repurchase mortgages which fall outside of the QM Safe Harbor.

If you have not guessed yet what choice Lenders are making, let me eliminate the suspense, they are denying the loans.

So this rule which was put into place to protect Borrowers is actually preventing qualified Borrowers from being approved for a loan.  This is happening so much, that it has even gotten the CFPB's attention, and gotten this very INFLEXIBLE government entity to reconsider their position.

The expectation is the CFPB will modify their QM Rule "Ability To Pay" guideline to take the impact of the 3% maximum on points and fees into consideration on lower size loans.  How the new guideline will look is not known yet, but it is good to know they are acknowledging they made a mistake in not considering the impact of this rule on lower price home purchases.

I hope to have more information on this soon, and will write a blog as soon as I have more details on what the change will look like.  In the mean time it is encouraging the CFPB Is Evaluating The Impact Of Their Qualified Mortgage (QM) Rules.

 

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Re-Blogged 1 time:

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  1. Praful Thakkar 05/16/2014 01:45 PM
Topic:
Mortgage / Finance
Location:
Connecticut
Groups:
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Mortgages
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1st Time Buyers
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Tags:
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Rainmaker
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Ginny Gorman
Phillips Post Road Realty ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

George, we all knew this would surface as an issue...may they act fast on any positive changes!

May 16, 2014 01:36 AM #1
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi George - Interesting post. I wonder why they didn't think of that when they were developing the guidelines - it seems like an obvious bottleneck. I also wonder what the odds are of them getting the fix right.

May 16, 2014 02:58 AM #2
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Political hacks do not usually design programs with feasibility. 

May 16, 2014 05:23 AM #3
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Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Can I quote you on that? Lol!

May 16, 2014 07:35 AM #4
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Costa Mesa, CA
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As is typical, George, the attitude is "here are some new rules, we'll worry about their effects later".  Typically, no rules benefit lower priced properties since %'s are always involved.  The CFPB needs to take a long hard look in the mirror and realize that the industry largely sorted itself out WITHOUT them needing to place these restrictions into the industry.

May 16, 2014 09:35 AM #5
Rainmaker
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Rob Spinosa
RPM Mortgage, Marin County, CA - Mill Valley, CA
Executive Loan Advisor, Marin Mortgage Broker

I recently closed a small loan amount and it was very difficult to get it to work under the new provisions.  I especially had a hard time explaining to the borrower why he could not do what he wanted to do.  As always, I am playing by the rules.  But I scratch my head every time about how convoluted Dodd-Frank has made our world.

“Any darn fool can make something complex; it takes a genius to make something simple.”  ~Pete Seeger

May 16, 2014 10:24 AM #6
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TeamCHI - Complete Home Inspections, Inc.
Complete Home Inspections, Inc. - Brentwood, TN
Home Inspectons - Nashville, TN area - 615.661.029

 Good evening, George. While I do understand that folks getting loans affect my business I do not have a dog in this particular hunt.

May 16, 2014 10:39 AM #7
Rainmaker
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Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

George -- thanks for keeping us up to date on this.  I am glad to hear that they are admitting their mistake.  It is important for lenders to give them feedback like this.  Bravo - job well done.

May 16, 2014 11:52 AM #8
Rainmaker
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Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale - Probate Broker

George, I've said it before and I will say it again and again, this is what happens when people who know nothing about a subject matter either start talking, or make decisions that impact others.  It's a sure formula for disaster.

 

May 16, 2014 12:37 PM #9
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Ed Silva
RE/MAX Professionals, CT 203-206-0754 - Waterbury, CT
Central CT Real Estate Broker Serving all equally

George, this is a government entity that is trying to be productive. Making a mistake and admitting to it, just like normal people do

May 16, 2014 01:18 PM #10
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Praful Thakkar
Keller Williams Realty - Andover, MA
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George, we all know what happens when they come up with something new....

May 16, 2014 01:40 PM #11
Rainmaker
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Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Resercher
These rules seem to have abs and flows every two years, so I'll be monitoring them. Love and light, Laura
May 16, 2014 02:03 PM #12
Rainmaker
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Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Resercher
Meant to say ebbs and flows*
May 16, 2014 03:01 PM #13
Rainmaker
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Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good morning George. We could write volumes on these regulation and QM, but you did a great job summing up the state of mortgages these days.

Make it a great weekend!

May 16, 2014 08:25 PM #14
Rainmaker
539,195
Maria Gilda Racelis
Home Buyers Realty, LLC-Manchester, Bolton. Vernon,Ellington - Manchester, CT
Home Ownership is w/in Reach. We Make it Happen!

Good Morning George: Common sense and logic left the building. It is sad why these people got the power to wield without possessing knowledge and understanding of the process and the impact of their regulations.

May 16, 2014 10:50 PM #15
Rainmaker
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Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

George, I can see where this would eliminate a lot of first time buyers. The CFPB may get it right the second time around.

May 16, 2014 11:09 PM #16
Rainer
190,341
David M. Dwares
Title Professionals Corp. - Fort Lauderdale, FL

Geroge, thanks for the update. A few of my friends on the mortgage end knew this would come once the effects could be seen, as you probably did as well. I both the CFPB and the lenders will continue to tweak things until we reach a balance.  I will keep following your blogs for further updates.

May 17, 2014 02:06 AM #17
Rainmaker
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Debbie Walsh
Shahar Management - Middletown, NY
Hudson Valley NY Real Estate 845.283-3036

As always George thanks for keeping us up to date.  Better to know now than to find out in the middle and be floundering.

May 17, 2014 05:35 AM #18
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